چکیده انگلیسی

This paper studies optimal labour market policy in a society where differently gifted individuals can invest in training to further increase their labour market productivity and where the government seeks both efficiency and equity. Frictions in the matching process create unemployment and differently skilled workers face different levels of risk of unemployment. We show that in such an environment, training programmes that are targeted at the disadvantaged workers complement passive transfers (UI benefits), unlike general training subsidies. Combining passive subsidies with a training subsidy conditioned on the individual being unemployed (for a period) – the typical Active Labour Market Programme – creates a favourable trade-off between equity and efficiency and this encourages high spending on training.

مقدمه انگلیسی

Active labour market policies were adopted by most advanced countries during the 1990s. The announced purpose of such policies is to protect workers who are exposed to negative employment shocks due to changing market conditions. The objectives are to reduce skill loss during extended periods of unemployment and to redirect the skills of those that are left idle by new technology or increased international trade. Countries differ with respect to the emphasis they put on the active programmes, but they share the outcome of having limited success with the programmes in terms of increasing the employment prospects and job quality of the average programme participants relative to non-activated unemployed workers. The outcomes of the programmes are surveyed by Martin, 2000, Heckman et al., 1999 and OECD, 2003.
Despite the problems with documenting a direct effect of the active programmes, countries continue with the policy. Assuming that this is not just policy failure, the governments must have objectives beyond the micro level of the programmes. For instance, governments might in fact look at the active policy as education that increases the productivity of disadvantaged workers but at the same time acknowledge that increasing equity through this policy comes at some costs in terms of reduced efficiency: the increase in productivity of disadvantaged workers might not fully off-set the dead weight loss of training some of the wrong types of worker plus the effect of the distortion – of the advantaged workers’ behaviour – caused by the taxes that are needed to finance the policy. Thus, there could be an effect at the macro level – e.g., less inequality – if it is the more disadvantaged workers who gain productivity from the programmes. This is conceivable, as Martin, 2000, Heckman et al., 1999, Kluve et al., 2007 and OECD, 2004 also conclude that some programmes have significant effects for some groups of individuals. In OECD (2003) it is also suggested that activation programmes have reduced poverty rates in some European countries. See also Blundell (2004)
This suggests that the potential value of an active labour market policy (ALMP) might not be fully recognised. At least it is important to consider heterogeneous effects, and yet, it is probably not enough to focus on the direct post-programme effects for programme participants. Training is often related to specific occupations in which case it is important that the participants take up a relevant occupation subsequently for the programme to be counted as a success. If, furthermore, it is a precondition for a positive effect to be recognised that an individual continues with this occupation for some time and periodically updates the training, then it becomes hard to distinguish the treated from the non-treated in the data. In this case, the recognition of the existence of jobs in certain occupations becomes conditioned on a commitment to training by the individual employees concerned, and the timing of training activities corresponding to wage increases will look less causal in the data and the effects will be harder to identify.
In general, it is not likely that short training courses can raise an individuals’ productivity immediately. A short course might be the beginning of a path to success, but it will take a lot more in terms of practice on the job and further training to induce a real jump in the person’s productivity. Identification of an isolated effect of programme participation becomes almost impossible in such a case. Yet there could still be an important effect, but one would have to look for it at a more aggregated level.
In this paper we study ALMP from a macro perspective assuming the existence of a government that is concerned both with equity and efficiency. Moreover, we study the impact of different social preferences on the optimal characteristics of labour market policy, active programmes and passive programmes. To do this, a specialized competitive search equilibrium model1 is developed: firms make irreversible investments in vacancies, and workers are paid wages and choose to invest in skills. In this environment, the optimal labour policy addresses the social concern that some workers have less ability than others to use and acquire the skills needed by employers.
The focus of our policy analysis is to answer three questions: Are active programmes substitutes for or complements to passive programmes within an optimal policy? What is the best active scheme, an education subsidy scheme for all or a training subsidy targeted at the least able workers? And if the latter, should the scheme be dependent on the duration of unemployment? These questions, in particular the one concerning the timing of the subsidy, have not been addressed by the fast advancing literature on how to organize unemployment policy (time-varying policy in our terminology).2
We find that our model can explain the main features of labour policy across the OECD countries. In particular, our model explains why some countries spend significant amounts on both active and passive labour programmes while others do not. Consistent with this observation is the fact that high-spending countries appear to have better records on income redistribution than low-spending countries. Moreover, we are able to replicate these features about labour market policy even though we assume risk-neutral agents and a competitive search equilibrium. Therefore, neither borrowing constraints nor wage inefficiencies are needed for establishing our results. And in contrast to the economics of education literature, we focus on a government’s potential equity concerns as the factor which drives policy decisions. For instance, there are no externalities in our model to make training subsidies desirable from an efficiency point of view. But there could be an equity-motivated case for a training subsidy in situations where the advantaged workers experience little unemployment and the disadvantaged workers experience high unemployment.
The paper is organized as follows. In Section 2, we present some background factors and motivates the issues taken up in this paper. In Section 3, we introduce a simple directed search model with a government that wishes to maximize a social welfare function using a number of policy instruments. In Section 4, we solve the equilibrium of the model with general versus targeted training, whereas Section 5 is concerned with the equilibrium when training is both targeted and also time-varying. In Section 6, we offer some concluding remarks.

نتیجه گیری انگلیسی

The massive and persistent emphasis put on activation and training of unemployed individuals in developed countries in general and in countries with highly developed welfare states in particular is a puzzle, because it has been difficult to identify positive effects from the often huge spending on these programmes. So either politics are irrational or economists have not been looking for effects in the right places. For instance, even if there are no overall effects on average earnings and employment for any of the programmes, there could be an effect at the macro level – e.g., less inequality – if it is the more disadvantaged workers who gain productivity from the programmes. Suppose income equality is a principal objective for some countries together with high average income. Could it then be that active programmes are favoured by some countries because such programmes reduce inequality efficiently when used together with traditional passive programmes such as UI benefits?
This is the question that we have been discussing in this paper, and the answer is in the affirmative. If income equality is a sufficiently strong objective to a government then it might well be rational to implement active training programmes for the long term unemployed together with passive benefit programmes such as UI. This combination is far more effective that the combination of UI benefits and a general education subsidy. This could indicate the need for high spending on activation by countries with strong desire for equity. Our results also suggest that high passive and active spending go hand in hand. Both these phenomenon can be observed in the data for the OECD countries.
These results are developed in a model with heterogeneous workers, human capital investment, and unemployment. The model is “pure” in the sense that ‘laissez faire’ is efficient: the privately chosen level of training is efficient and even though disadvantaged workers with low skills are the more frequently unemployed, unemployment is efficient and reflects search and matching frictions. In other words, it is not the existence of externalities that justify the training subsidies. We have also deliberately disregarded the traditional insurance aspect of passive policies by letting agents be risk neutral in our model. So it is not the usual missing insurance market that implies government spending on UI in optimum. The redistributive functioning of UI in this model with heterogeneous unemployment risk is enough to have passive transfers to the unemployed entering the optimal policy package (by a government that maximizes a social welfare function that puts weight on both equity and income efficiency).
Furthermore, not only can we explain the joint use of passive and active subsidies, the model also sheds light on the large variation in the labour market policies of OECD countries. Our results suggest that much of the variation in policy can be explained by different social objectives rather than by inefficient policies or differences in technology and human capital.
The analyse in this paper could be improved in two directions. First, the empirical assessment of the theory is only indicative. An empirical study is needed to isolate the specific causes of policy variation across OECD countries. Second, the theory of the model could also be extended to incorporate a more detailed description of active labour market programmes. For example, different elements of active programmes, including different subsidies for training employed and unemployed workers, could be studied. We leave these improvements for further research.